IVAs may be needed as consumers ‘have cut to their limit’

Many consumers have reached the point where they can no longer cut back on their spending, a financial expert has said.

Founder of moneymagpie.com Jasmine Birtles noted it is getting “harder all the time” for consumers to make ends meet.

There are normally two ways to economise, she noted, with one being to reduce spending on non-essentials and the other to shop around for cheaper goods.

A further possibility is to try to increase income, Ms Birtles suggested, stating: “Quite a lot of people are saying that they have cut as much as they can and that they can’t cut anymore. For them I’m saying it’s time to make more money now.”

However, for some of those able to get some extra work – which with unemployment still near 2.5 million may not always be available – the level of debt burden may be too much to cope with and with inflation and other pressures.

In such circumstances, an individual voluntary arrangement (IVA) might be the best solution.

An IVA is a form of insolvency that is much less severe than bankruptcy, with less damage to a credit rating in the long run. It does not wipe out all debts but can freeze interest and reduce payments to a smaller level agreed with creditors.

Provided three quarters of those owed money agree to the deal, this will be binding on any remaining dissenters, with the lower payments being made over a period of time not exceeding five years.

Ms Birtles made her comments after a survey by MyVouchers.co.uk revealed 21 per cent of people have no money left each month once their bills have been paid.

By James Francis